The Law the Planner

Marriott's 7 Percent Solution

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by Jonathan T. Howe Esq. |
February 12, 2018

While generally I do not mention the names of companies in my articles, this one would be obvious to everyone, so I am making an exception.

Marriott International announced on Jan. 24 that it is reducing commissions to third-party meeting planners from 10 to 7 percent effective March 31. This decision, which has resulted in great outrage, obviously affects the third parties that provide site-selection and event services, but also hits the bottom line of corporations and associations that receive commissions from Marriott's hotels to help fund their programs.

A little history
That 10 percent commission has been a mainstay in the distribution channel of hotel sleeping rooms for more than 40 years. When the phenomenon of the independent third-party site-selection company came about, they too, lived on the commission.

Now along comes the worldwide behemoth going to a 7 percent solution. Of course, Marriott is entitled to determine how it will conduct its business, which includes exempting the larger third-party companies such as ConferenceDirect and Experient until their current contracts expire. After that, they go to 7 percent, as well.

This has been tried before. But unlike when one airline eliminated commissions and the rest followed, changing the airline-commission game forever, when hotelier Ritz-Carlton tried to reduce commissions about 20 years ago, no one followed. The 10 percent rate stayed.

Will anyone follow this time? Today, brands are franchises and subject to the needs of owners and investors who are focused on the return on their investment. If the owners like the results, the change might stick.

What's next for planners?

If this change does stick, third parties and their clients will face a tidal shift in how business is conducted. Third parties might need to start charging for specific extra services, or move wholesale to a fee-based model, which would mean coming up with a whole new business plan to see where the money is coming from and figuring out whether this would work with current clients.

The bottom line: Someone is still going to have to pay for your services, directly or indirectly. What has been perceived by your clients as "free" is not. As third parties, you will have to show what your value-add is and shift the cost of that to the client.

If you're going to continue taking commissions, reevaluate your contracts to make sure they are solid. In my book, a commission is earned once the hotel agreement has been executed, meaning, the third party has been named in the hotel contract as the recipient of a commission. We've seen clients cut their third parties out of the moneys due, and the response by hotels is generally, "You guys fight it out, and when you are in agreement, we'll pay it."

As always, have your contracts scrutinized by an attorney to protect your interests. If there are to be additional services provided, delineate how you will be paid or, how the cost of the services will be set off by commissions received.